Risk Classification and Sex Discrimination in Pension Plans

Two Supreme Court decisions concerning the legal definition of discrimination in the Civil Rights Act of 1964 prohibit as discriminatory the use of separate mortality tables for men and women in pension benefit calculations. We analyze discriminatory aspects of risk classification and find that the Civil Rights Act has increased discrimination in pension compensation. This article demonstrates both theoretically and by simulation that sex-based risk classification results in less sex discrimination and less individual discrimination than a unisex approach. This result holds for various sex-based classification policies, as well as for various definitions of discrimination and statistics used to quantify those definitions. Of six pension classification policies, the Supreme Court's policy of unisex classification is the most discriminatory.